Nonfinancial Rewards Often Have More Staying Power

RICHARD HODGETTS SMALL BUSINESS

January 29, 2001|RICHARD HODGETTS SMALL BUSINESS

What motivates people? The most common answer is "money," and it comes not just from those who are making $25,000 annually. At the end of each year, Wall Street brokerages announce their bonuses. Are there partners in these firms who got a bonus of $3 million last year and are hoping for more this year? You bet.

There seems to be no end to the amount of money that people seek. A friend of mine who is a senior-level manager in a Fortune 50 firm likes to say that people who make millions every year will volunteer for the craziest assignments if it means an opportunity to make even more money this year.

Of course, there is a big problem with using money to motivate your people. No matter what you did for them last time, they expect at least as much this time. So you can't institute a bonus system that gives them the opportunity to earn 10 percent of their salary as a bonus and then cut this percentage without their feeling that you are taking money out of their pocket.

Additionally, if someone has earned $1,000 in bonuses during each of the last five years, but this year doesn't qualify for a bonus, the individual's motivation suffers. The person thinks he has had $1,000 taken away. This is because over time the bonus begins to be viewed as part of the pay package.

I know firms that have revised their bonus system toward the end of a poor year to ensure that their people will get at least some bonus money. They realize that they are locked into a never-ending cycle. Everyone wants more money, and they want it every year.

How can you minimize this problem? The best answer is to focus on minimal financial rewards (nothing more $500 per person per year) so that people don't spend all of their time thinking about money, and put more emphasis on nonfinancial rewards -- and there are lots of things you can do here.

In particular, nonfinancial rewards such as recognition tend to have more staying power. People remember the nice things that are said about them long after the bonus money is spent.

Second, you not only can control recognition, but you can give as much, or as little, as you want to someone.

Third, you can give these whenever you want, in contrast to many financial rewards, which are given at specific times, such as the end of the year or after the big sales season.

Finally, nonfinancial rewards can take a number of different forms, depending on what you think will be most motivational to certain people. Perhaps best of all, it's tough to keep personnel if you rely on financial rewards alone -- unless you are able to give more than anyone else.

Recent research reveals that half of the best workers in industry report that they would move to another firm for a 10 percent increase in compensation. Most firms can't win the "money motivation" game. They need to rely on other approaches. In my next column I'll discuss some of these.

Richard Hodgetts is a professor of management at Florida International University. He can be reached by e-mail at hodgetts@fiu.edu.